Expert guidance helps keep public procurements on track

By Rob Lamberti, AdvocateDaily.com Contributor

It is important for public organizations to rely on experts who understand the legal implications of third parties procuring goods and services to make sure the agreements comply with the spider web of relevant legislation and trade agreements, says Toronto health lawyer Michael Gleeson.

Gleeson, a partner with DDO Health Law, says his firm has been dealing more often with public entities contracting with firms for specific services that may result in those companies having to procure items as part of their contract fulfilment.

Procurement is the process of obtaining goods or services for public organizations, such as hospitals, to ensure transparency, integrity, competition, and accountability, he says. Any obligations those public entities have under procurement legislation and regulations extend to all the parties in their supply chain.

Gleeson tells AdvocateDaily.com that organizations should consult with procurement experts before making any decisions on an acquisition process to ensure “you have the proper accountability terms in place with that third party.

“My recommendation is that a procurement lawyer is best, but there are consultants who might be able to help you with this,” says Gleeson.

That person would review the application of acquisition policies and regulations in specific scenarios, such as a third party that is contracted to make meals at a hospital and buys goods to make that food. That third party have different procurement obligations if it is buying consumable goods than it does if it is buying new equipment to make the meals for the hospital, he says.

Gleeson says another relationship model growing within the health field is the outsourcing of equipment services management.

“It’s where a third party will take on full responsibility for all the equipment within a suite, or major pieces of equipment within a hospital in exchange for a set fee,” he explains. “They may take on responsibility for making sure equipment is procured, installed, properly serviced, and replaced when necessary.”

Third-party procurement could, for example, cover hospitals with cafeterias that provide food to their patients and will often hire a food services company to do it. But part of the deal may include that company purchase equipment for the kitchen within the hospital and the food for the meals, he says.

“It will be circumstance dependent,” Gleeson says.

“How the payment structure is set up in the agreement with the third party will also be relevant,” he says. “How the products are used will be pertinent, like if that third party is buying products that will then be resold or are incorporated into a product that is resold, then there may be an exemption.”

Purchases of goods and services by third parties could be subject to existing procurement legislation and agreements that must be followed, he says.

There are many agreements and legislation that oversee the acquisition of goods and services within Canada, such as the Canada Free Trade Agreement (CFTA), and each province has its own regulations, Gleeson says. Ontario, for instance, has an agreement with Quebec under the Trade and Co-operation Agreement between Ontario and Quebec (OQTCA).

Companies seeking Ontario government contracts, for example, must comply with provincial procurement regulations, he says.

Third parties can’t develop business relationships that circumvent legal commitments. The Canada Free Trade Agreement states, in Chapter 5, art. 503, that entities cannot design their procurement in such a way that it avoids obligations under the agreement, says Gleeson.

“So essentially, you are not allowed to avoid the obligations under the agreement by giving money to someone else,” he says. “We’ve seen this come up in situations like in construction with general contractors, where they are hired for one thing, but they may need to engage other sub-trades or buy materials to carry on their obligations.”

The particular circumstances of the subcontractor engagement will be part of the analysis of whether CFTA and other procurement legislation apply, Gleeson says.

“Is the third party buying on your behalf or are they buying for themselves to carry out their obligations?” he says. “All these factors are going into the analysis of whether CFTA and other procurement legislation apply to a particular purchase.”

Gleeson’s general advice is to seek a lawyer experienced in procurement. “Much of this is purely legal, looking at the wording of the legislation or the relevant trade agreement, so my first recommendation is to get a lawyer,” he suggests.

“Depending on the relationship between the purchaser and the third party, things like health and safety might apply differently, and privacy as well, and that relationship might differ depending on how that relationship flows down to the engagement of sub-contractors,” Gleeson says.